Rising home prices have boosted homeowner equity—not that it’s much use right now.
Homeowners are tapping a lower level of equity than the historic norm, according to Black Knight—and the culprit, once again, is higher interest rates.
Mortgage holders withdrew a collective $39 billion in home equity in the second quarter, according to real estate analytics company Black Knight—a figure that includes second-lien home equity loans, lines of credit and first-lien cash-out refinances. That’s a gain compared with the $37 billion accessed in the first quarter of this year, but is well below the roughly $79 billion tapped in the second quarter of 2022, according to Black Knight.
The pandemic’s ultralow mortgage rates were a blessing and a curse for homeowners. For those who love where they live with no intention of moving or undertaking renovations any time soon, mortgage rates’ recent rise is likely of little consequence. But those unhappy with their home may find themselves with few compelling options.
Higher rates mean tapping equity, a common method of funding home repairs and renovations, has gotten more expensive. “Rising interest rates are having a clear and decisive impact on both how and how much equity mortgage holders are willing to withdraw from their homes,” the company wrote in its September mortgage monitor report.
The report found that homeowners withdrew an average 0.92% of tappable equity each quarter from 2010 through 2021 on a relative basis. That share dropped to 0.4% over the last three quarters. “Since interest rates began to rise roughly 15 months ago, this would suggest that nearly $200 billion has been left in equity and has not flowed back through the broader economy,” the report says.
Higher mortgage rates have reduced homeowners’ incentive to move, data suggest. Active home listings through much of August remained well below year-ago levels,
Redfin
data covering the four-week period ending Aug. 27 show.
Mortgage rates tracked by
Freddie Mac’s
weekly measure have been above 6% all year, with the gauge of the average 30-year fixed-rate mortgage rising late last month to 7.23%, its highest level in decades. The measure came down slightly last week, but an increase in the 10-year Treasury yield in the days that followed could portend another weekly gain this week.
Those factors pushed one leading indicator of future home sales to its lowest point in decades: the Mortgage Bankers Association’s seasonally-adjusted index measuring the volume of applications for home purchase loans fell to its lowest level in 28 years last week, the trade group said Wednesday. “Prospective buyers remain on the sidelines due to low housing inventory and elevated mortgage rates,” Joel Kan, the trade group’s deputy chief economist, said.
The median home in July sold for $406,700, according to the National Association of Realtors—a roughly 2% increase from the year prior and the first such year-over-year gain since January. “Most homeowners continue to enjoy large wealth gains from recent years with little concern about home price declines,” Lawrence Yun, the trade group’s chief economist, said in a statement last month.
Strengthening home prices have resulted in gains in home equity. Black Knight’s measure of tappable equity, a phrase referring to the amount of equity that a homeowner could use while leaving 20% untouched, increased to $10.5 trillion in June, a level the analytics company said isn’t far from its 2022 peaks.
Write to Shaina Mishkin at [email protected]
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